"Wake me up when September ends," sang the band Green Day -- and many investors will feel the tune was written for them.
The ninth month of the year is notoriously unkind to markets, and 2024 could well follow the trend.
September has consistently been a miserable time for U.S. stocks. Just check out the average monthly performance for the four main indexes -- the Dow Jones Industrial Average, the benchmark S&P 500, the tech-heavy Nasdaq Composite, and the small-cap focused Russell 2000 -- since their inception:
September has also brought about its fair share of crashes, including the post-9/11 slump and the selloff triggered by the 2008-09 financial crisis -- although the data doesn't always look so bad in presidential election years.
Bonds don't tend to offer much relief, either -- the iShares U.S. Treasury bond ETF, which trades under the ticker GOVT and tracks the broad U.S. government bond market, has also typically had its worst month in September:
Plenty of analysts have tried to explain the September slump.
They argue traders are typically in a downbeat mood after returning from their summer vacations, and take the start of fall as an opportunity to reassess the state of their portfolios. It's also the time of year when firms start to think about their annual profit and loss statements, meaning there's more incentive to sell some better-performing holdings.
Conversely, investors are in a cheerful mood right now, with stocks coming off a strong August when a barrage of stronger-than-expected economic data eased worries about the health of the U.S. jobs market. The Federal Reserve is also expected to start cutting interest rates for the first time in four years when its next meeting concludes on Sept. 18, which could boost both stocks and bonds.
But that doesn't mean the market can just shrug off 100-plus years of history. There are plenty of reasons to believe this could be another gloomy September.
Nvidia's latest earnings are one potential red flag, according to ADM Investor Services Chief Economist Marc Ostwald. The chip maker beat the Street's top-line profit and revenue forecasts, but issued underwhelming sales guidance that has given investors reason to question how long the surge in demand for its artificial intelligence products can last.
Broader indexes have shaken off the disappointment so far -- but any further signs of a slowdown could raise questions about whether the AI-fueled rally has made the entire market overvalued.
"I'm really not convinced we can escape [a September slump] this year," Ostwald told Barron's in a recent interview. "Nvidia's results show there are a lot of imbalances in the market ahead of the first Fed rate cut."
The August jobs report due out on Sept. 6 could also spark a selloff. Less than a month ago, stocks tumbled sharply after the nonfarm payrolls number for July came in lower than expected -- and more weak data would call into question the idea that the U.S. economy is headed for a so-called soft landing.
There are other likely sources of uncertainty -- including the looming presidential election showdown between Kamala Harris and Donald Trump, and the continuing threat that the crisis in the Middle East could spiral into a full-blown conflict featuring major oil producers Iran and Saudi Arabia.
Gold and the U.S. dollar -- two assets traditionally seen as havens -- haven't tended to perform so badly in September, and that could be the case again in 2024 if investors believe political factors at home and abroad will lead to a spike in volatility.
So as summer ends, leaves start to fall, and the fantasy football season begins, don't be surprised if September serves up another stock market slump.